JPRF-F-2022-010 — Creation of Social Interest Microcredit Segment and 1% Interest Rate, Based on Presidential Decree No. 284

Financial Policy and Regulation Board Resolution No. JPRF-F-2022-010

THE FINANCIAL POLICY AND REGULATION BOARD

CONSIDERING:

That Article 226 of the Constitution of the Republic of Ecuador provides: "State institutions, their agencies, dependencies, public servants, and persons acting by virtue of state authority shall exercise only the competencies and powers attributed to them in the Constitution and the law. They shall have the duty to coordinate actions for the fulfillment of their purposes and to make effective the enjoyment and exercise of the rights recognized in the Constitution.";

That Article 227 of the Supreme Norm orders: "Public administration constitutes a service to the community that is governed by the principles of effectiveness, efficiency, quality, hierarchy, decentralization, coordination, participation, planning, transparency, and evaluation.";

That, according to Article 302, numeral 4 of the Constitution of the Republic, monetary, credit, exchange, and financial policies shall have, among others, the ultimate objective of achieving "economic stability," which is also one of the objectives of economic policy, in accordance with the constitutional precept inserted in Article 284, numeral 7;

That the first clause of Article 308 of the Supreme Norm stipulates that financial activities are a matter of public order and shall have the fundamental purpose of "preserving deposits and meeting financing requirements for the achievement of the country's development objectives." In concordance, Article 309 of the Constitution of the Republic stipulates that the norms of the national financial system shall be responsible for "preserving its security, stability, transparency, and solidity.";

That Article 310 ibidem establishes that: "The public financial sector shall have as its purpose the sustainable, efficient, accessible, and equitable provision of financial services. The credit it grants shall be oriented preferentially to increase the productivity and competitiveness of productive sectors that allow achieving the objectives of the Development Plan and of less favored groups, in order to promote their active inclusion in the economy.";

That Article 334, numeral 5 of the Constitution of the Republic orders that: "The State shall promote equitable access to the factors of production, for which it shall correspond: (...) 5. Promote public financial services and the democratization of credit.";

That Article 5 of the Organic Code of Money and Finance provides that the formulation of policies and regulations in matters of money, credit, exchange, finance, as well as insurance and securities, is the exclusive prerogative of the Executive Function and ratifies that the objectives of public policy in these matters are those determined in Articles 284 and 302 of the Constitution of the Republic;

That Article 13 of the aforementioned Code creates the Financial Policy and Regulation Board as part of the Executive Function, responsible for the formulation of credit, financial, securities, insurance, and prepaid comprehensive health care services policy, and subsequently establishes that: "Only when decisions imply the use of fiscal resources, affect existing financing granted to the body in charge of public finances, or imply the need for sovereign guarantee, the resolutions adopted by the Financial Policy and Regulation Board must previously have the favorable report of the head of the body in charge of public finances";

That Articles 14, numerals 1 and 2 of the Organic Code of Money and Finance, regarding the scope of action of the Financial Policy and Regulation Board, mandate: "1. Formulate credit, financial, including insurance policy, prepaid comprehensive health care services, and securities policies; 2. Issue regulations that allow maintaining the integrity, solidity, sustainability, and stability of the national financial system (...) For the fulfillment of these functions, the Financial Policy and Regulation Board shall issue norms in the matters within its competence, without being able to alter legal provisions. The Financial Policy and Regulation Board may issue regulations by segments, economic activities, and other criteria.";

That Article 14.1, numeral 7, literal b) ibidem, states: "For the performance of its functions, the Financial Policy and Regulation Board must fulfill the following duties and exercise the following powers: (...) 7. Issue the prudential regulatory framework to which financial entities, securities, insurance, and prepaid comprehensive health care services entities must adhere, a framework that must be coherent, not give rise to regulatory arbitrage, and cover, at least, the following: (...) b) Establish the system of maximum interest rates for active and passive operations of the national financial system and the other interest rates required by law, promoting the development of prudent credit (...)";

That Article 130 of the Organic Code of Money and Finance orders that: "The Financial Policy and Regulation Board shall establish the system of maximum interest rates for active and passive operations of the national financial system and the other rates required by law. Usury is prohibited. - At the request of public financial entities, the Financial Policy and Regulation Board shall establish a special maximum interest rate for social interest credits belonging to the microcredit segment.";

That the Fiftieth Fourth Transitional Provision added to the Organic Code of Money and Finance by the Organic Reforming Law to the Organic Code of Money and Finance for the Defense of Dollarization, prescribes: "Transitional Regime of Resolutions of the Codification of the Monetary and Financial Policy Board. The resolutions contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions of the Monetary and Financial Policy Board and the norms issued by control bodies shall remain in force until the Monetary Policy Board and the Financial Policy and Regulation Board resolve what corresponds, within the scope of their competencies.";

That the Twenty-Ninth General Provision of the Organic Code of Money and Finance, Book I, establishes that: "In the current legislation where mention is made of the 'Monetary and Financial Policy Board', replace it with 'Financial Policy and Regulation Board'.";

That Article 1 of Executive Decree No. 284 of December 10, 2021, orders: "Article 1.- Declare of national priority the granting of social interest credits belonging to the microcredit segment at 1% annually and up to thirty (30) years term, through public banking.";

That Article 2 of the aforementioned Executive Decree establishes: "Order the members of the board of BANECUADOR B.P. to resolve the authorization to its General Manager so that he/she requests the Financial Policy and Regulation Board to establish a maximum interest rate for social interest credits belonging to the microcredit segment at 1% annually and up to thirty (30) years term, in accordance with the management policies issued by BANECUADOR B.P.";

That Article 3 ibidem provides: "Establish a partial subsidy according to the amounts supported by technical reports and that are not covered by the 1% rate, to cover the operational and financial costs and expenses, including credit risk, funding, and operational costs, required by the credit referred to in this Executive Decree, which shall be granted through BANECUADOR B.P. The request for the subsidy defined herein shall be presented by BANECUADOR B.P. to the Ministry of Economy and Finance; the latter shall approve or deny said request in accordance with the proposal made by BANECUADOR B.P. The consequent budgetary assignment shall be subject to the guidelines established by the Ministry of Economy and Finance. - The Ministries of Production, Foreign Trade, Investments and Fisheries; of Economic and Social Inclusion; and, the Ministry of Agriculture and Livestock, in cases where they have approved investment projects, through which beneficiaries who may be subjects of microcredits at 1% annually and up to thirty (30) years term granted by BANECUADOR B.P. are identified, with the subsidies determined in this Executive Decree, shall process them directly between BANECUADOR B.P. and the corresponding ministry.";

That the penultimate consideration of said Decree No. 284 reads: "That the Ministry of Economy and Finance has issued the corresponding prior, favorable, and binding opinion in accordance with numeral 15 of Article 74 of the Organic Code of Public Planning and Finance;" and, in virtue thereof, in accordance with Article 9 of the Organic Administrative Code, which provides that public administrations shall develop their competencies in a rational and orderly manner, avoiding duplicities, it is not necessary to have a new favorable report from the head of the body in charge of public finances as ordered by the eighth clause of Article 13 of the Organic Code of Money and Finance, Book I;

That Article 1 of Chapter XI "NORMS THAT REGULATE THE SEGMENTATION OF THE CREDIT PORTFOLIO OF ENTITIES OF THE NATIONAL FINANCIAL SYSTEM", of Title II "NATIONAL FINANCIAL SYSTEM", of Book I "MONETARY AND FINANCIAL SYSTEM" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions of the Monetary and Financial Policy Board, determines the credit segments of the national financial system;

That on December 22, 2021, the Ministry of Agriculture and Livestock, through the Integrated System of Public Planning and Investment (SIPeIP), sent the profile of the PROJECT FOR THE PROMOTION OF AGRICULTURAL INVESTMENT to the National Secretariat of Planning;

That by Resolution No. D-2021-099 of December 21, 2021, issued by the Board of Directors of BANECUADOR B.P., the reports for the implementation of the 1% interest financial product up to 30 years term directed to the social interest microcredit segment were taken as known and accepted; the financial product and the management policy of 1% interest up to 30 years term directed to the social interest microcredit segment were approved; the General Manager of BANECUADOR B.P. was authorized to request the Financial Policy and Regulation Board to establish a maximum interest rate for social interest credits belonging to the microcredit segment at 1% annually and up to thirty (30) years term; the criteria for the selection and identification of potential beneficiaries of these credits were approved, with the requirements for their granting; the General Manager of BANECUADOR B.P. was authorized to assume the costs related to the life insurance for the CREDI FOMENTO product with a 1% interest rate, up to 30 years term belonging to the microcredit segment, whose costs will be assumed in the subsidized rate, in accordance with what is established in Article 250.1 of the Organic Code of Money and Finance, based on the technical impact report of support prepared by BANECUADOR B.P.;

That on December 22, 2021, the Vice Minister of Agricultural Productive Development of the Ministry of Agriculture and Livestock certified that the PROJECT FOR THE PROMOTION OF AGRICULTURAL INVESTMENT with CUP 133600000.0000.387404, has complete technical and economic viability for the execution of the project or program;

That by letter No. SNP-SPN-2021-1225-OF of December 23, 2021, the Subsecretariat of National Planning of the National Secretariat of Planning issues the priority opinion of the so-called: "Project for the Promotion of Agricultural Investment"; CUP: 133600000.0000.387404.; Period: 2022 – 2025;

That by memorandum No. BANECUADOR-GAJ-2021-1362-MEM of December 23, 2021, the Legal Advisory Management of BANECUADOR B.P. issued its favorable legal opinion and sent to the General Management of BANECUADOR B.P. Resolution No. D-2021-099 issued by the Board of Directors of BANECUADOR B.P. on December 21, 2021, in order that it be duly sent to the Financial Policy and Regulation Board;

That by letter No. BANECUADOR-BANECUADOR-2021-1032-OF of December 23, 2021, the Acting General Manager of BANECUADOR B.P. requests the Financial Policy and Regulation Board to issue the regulation to fix the special maximum interest rate of 1% for social interest credits belonging to the microcredit segment, in order to comply with Executive Decree No. 284 of December 10, 2021; and, for this effect, sent to the Financial Policy and Regulation Board Resolution No. D-2021-099 issued by the Board of Directors of BANECUADOR B.P. and the corresponding technical support reports;

That by letter No. BANECUADOR-BANECUADOR-2021-1043-OF of December 29, 2021, the Acting Risk Manager of BANECUADOR B.P. establishes the conclusions and recommendations regarding the implementation of the credit product "CREDI FOMENTO 1%";

That the Technical Secretary of the Financial Policy and Regulation Board by memorandum No. JPRF-SETEC-2021-0009-M of December 30, 2021, sends to the President of the JPRF, the technical and legal analyses that support the pertinence of this resolution, contained in reports No. JPRF-CT-2021-005 and No. JPRF-CJ-2021-0009 of December 30, 2021, respectively;

That the Financial Policy and Regulation Board in ordinary session held by technological means, convened on December 30, 2021, with date January 3, 2022, knew and approved the text of the following resolution; and,

In exercise of its functions,

RESOLVES:

ARTICLE 1.- Add immediately after Article 29 of Subsection IV "INTEREST RATES FOR SPECIAL OPERATIONS" of Section II "ON INTEREST RATES", of Chapter XI "INTEREST RATE SYSTEM AND FEES OF THE CENTRAL BANK OF ECUADOR", of Title I "MONETARY SYSTEM", of Book I "MONETARY AND FINANCIAL SYSTEM" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, the following unnumbered article:

"Art. (...).- For the purposes of Executive Decree No. 284 of December 10, 2021, the special maximum interest rate for social interest credits belonging to the microcredit segment is established at 1% annually."

ARTICLE 2.- Add as Eighth and Ninth General Provisions of Section II "ON INTEREST RATES", of Chapter XI "INTEREST RATE SYSTEM AND FEES OF THE CENTRAL BANK OF ECUADOR", of Title I "MONETARY SYSTEM", of Book I "MONETARY AND FINANCIAL SYSTEM" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, the following:

"EIGHTH.- For the purposes established in Executive Decree No. 284 of December 10, 2021, BANECUADOR B.P. or its legal successor must manage the necessary resources with the Ministry of Economy and Finance, in accordance with the opinion contained in Letter No. MEF-VGF-2021-0894-O of December 22, 2021, prior to the granting of the credits. In addition, it will implement the processes that allow the fulfillment of the objectives of the 'Promotion of Agricultural Investment' project and will implement the risk mitigation actions contained in its internal reports, both for adequate portfolio placement and recovery.

BANECUADOR B.P. or its legal successor will publish on its website indicators related to the fulfillment of the objectives of the 'Promotion of Agricultural Investment' project, including those of financial inclusion.

NINTH.– The Superintendency of Banks, without prejudice to the subsidy that the Ministry of Economy and Finance will make, in its supervision processes must ensure the adequate use of resources in the exercise of its function to evaluate the quality and control of risk management of this Microcredit Social Interest financial product."

ARTICLE 3.- Add in Article 1 of Chapter IX "NORMS THAT REGULATE THE SEGMENTATION OF THE CREDIT PORTFOLIO OF ENTITIES OF THE NATIONAL FINANCIAL SYSTEM" (Chapter renumbered by Article 2 of Resolution of the Monetary and Financial Policy Board No. 647-2021-F, published in Official Register No. 415 of March 22, 2021), of Title II "NATIONAL FINANCIAL SYSTEM", of Book I "MONETARY AND FINANCIAL SYSTEM" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, the following numeral:

"8. Social Interest Microcredit.- Operations granted to credit applicants in accordance with Executive Decree No. 284 of December 10, 2021, in accordance with the characterization of the financial product defined by BANECUADOR B.P. or its legal successor."

FINAL PROVISION.- This resolution shall enter into force from the present date, without prejudice to its publication in the Official Register. This resolution will be published on the institutional website of the Financial Policy and Regulation Board within a maximum term of two days from its issuance. BANECUADOR B.P. will publish this resolution on its institutional website.

COMMUNICATE.- Given in the Metropolitan District of Quito, on January 3, 2022.

THE PRESIDENT, Master María Paulina Vela Zambrano

Master María Paulina Vela Zambrano, President of the Financial Policy and Regulation Board, processed and signed the preceding resolution, in the Metropolitan District of Quito, on January 3, 2022.-

I CERTIFY. TECHNICAL SECRETARY Dr. Nelly Arias Zavala